Microsoft Shares Bacon, Searches for the Beef

After its big cash outlay, the software giant still has to answer questions about growth.

REDMOND, Wash. -- With the announcement of a big cash-distribution plan under its belt, Microsoft ( MSFT) now must answer one big question still on investors' minds: Where's the growth going to come from?

Microsoft tried to answer that question Thursday at a relatively uneventful annual analyst day. The software giant pointed to a number of growth avenues, ranging from new types of PCs such as the Tablet and Media Center PC, to selling cheaper software in emerging markets, to online advertising to gaming. But the company did little to dispel some investors' perception that it is becoming a more mature, slower-growth company.

The company's long-anticipated announcement more than a week ago of a plan to distribute its enormous cash hoard, currently sitting at $60.6 billion, seemed only to feed into that perception. The plan includes a one-time special dividend of $3 a share, a $30 billion share-buyback program over four years and doubling of the company's regular dividend on an annual basis to 32 cents a share.

Just two days later Microsoft posted an impressive 14% growth in revenue in fiscal 2004 at a time when other software vendors are still suffering from shrinking sales.

"We had an amazing blow-out fiscal year 04," beamed a self-described "super pumped up" CEO Steve Ballmer. But he pointed out that the law of large numbers make growth that much harder for Microsoft, noting only three or four other companies have posted operating income at Microsoft's level, at $13.8 billion in fiscal 2004, excluding some charges.

I know that when we think about what's possible, we think we can do a very, very good job, and a very, very good job ... over the next four years might be able to grow a whole Nokia, a whole Siemens, potentially even a whole Intel," Ballmer said, with growth measured by the increase in operating income. "I think there is incredible growth -- growth that should amaze, growth that should impress."